THE RISK FORUM THE BOOMING CONSTRUCTION SECTOR IN ZAMBIA – MANAGING THE RISKS!
OVERthe past two decades, the Zambian construction industry has experienced noticeable improvements in defining and standardizing both project control and risk management practice. Most of these infrastructure project also present considerable opportunities to contractors and investors, but transparent and corruption pose a major threat to the industry.
Most of the major projects taking place aim to boost economic growth and integrate the country into a regional economic hub in terms of the roads, airports and other infrastructure projects. But despite these developments and improvements, most of the projects are still failing to come in on time and under budgets abnormally high rates. And not only that, most projects are been hampered by transparency and corruption risks that are common to major infrastructure projects.
Recent case evidence conducted by the Institute of Risk Management Zambia (IRMZA) demonstrates that more than 75% of large complex projects, observed across the construction sector in Zambia, have failed to meet their owner-sactioned objectives. Although a broad range of views have been published as to why these major projects continue to fail at such a high rate, this article addresses the apparent cynicism being displayed towards existing project risk management effectiveness.
Project owners and contractors alike appear to be visibly questioning the return on investment that traditional risk management practices bring to a major project environment.
This has been no more evident than during this period when the world is gripped with the pandemic of Coronavirus during which most large project organisations as well as their contract engineering and advisory firms, shed significant numbers of risk management and assurance resources in an effort to lower project overheads. Most of the major organisations that had no choice but to cut really deep dissolved their entire risk management capability as these resources were assessed as being non-critical to project delivery.
In light of the visible construction industry dissatisfaction in Zambia, project risk management needs to evolve to a higher state of effectiveness if it is to regain the confidence of project owners and add demonstrable value to future project delivery. Before such a risk effectiveness revolution can occur, however, a number of negative project phenomena impairing risk management from delivering value in major project environments, will need to be addressed.
According to the findings by IRMZA, Government needs to adopt a deeper policy reform to resolve the inertia and also combat corruption, a lack of transparency, and environmental and social risks, if the sector is to gain any credibility and trust of the public. The findings also point to the influence of Chinese controlled companies which are seen to have a lot of influence and control in the sector hence attracting a lot of questions about the openness of the procurement processes.
Managing these risks will require improvements in data reporting and transparency-especially around debt. It will require open Government procurement and adherence to high social and environmental standards. These risks are been exacerbated by limited transparency and openness in the construction industry coupled with the weak economic fundamentals and governance of several participating stakeholders.
The first transparency issue accompanying most major infrastructure projects in Zambia relates to the development of the tender documentation and the importance of effective executive decision-making and oversight (good governance) in attempting to control these risks is well documented. The easiest way for an unfair participant to ensure a good position in the tender is to lobby restrictive requirements. These restrictive requirements on the financial condition of participants as well as requirements on technologies and materials can restrict the number of competing players. This is an areas Government could come in and develop standard recommendations for tenders which should be more or less strict depending on the condition of competition in a particular market.
While it maybe challenging to mitigate transparency and corruption risks on major infrastructure projects, developers and Government and especially the National Construction Council (NCC) and the Zambia Public Procurement Agency (ZPPA) can take the necessary steps to minimize potential threats.
Government through the Ministry of Infrastructure would also do well in having an effective and efficient control on how they grant projects and their implementation plans. There is also need to widen and develop competition in the sector by building capacity for local players and also giving access to different national and foreign investors.
However, the inability for local contractors to learn and/or apply better practices is particularly problematic in the construction sector as it implies a lack of progression in the manner in which advanced risk solutions are brought to bear in advanced project environments. Thus if risk management is to add value to major infrastructure project, Government agencies, project owners and contractors alike should heed the lessons of known better practice, as the cost of ignoring these lessons is potentially greater than the premium of implementing them.
For comments and feedback
contact: fziba@irmza.org